Business and Political Experiences Pull Romney 2 Ways on Economy

Binyamin Appelbaum|The New York Times

Tuesday, 28 Aug 2012 | 8:46 AM ETThe New York Times

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When Mitt Romney declared during his unsuccessful campaign for the Senate in 1994 that the federal minimum wage should rise with inflation, a break with Republican doctrine, both Democrats and Republicans accused him of pandering to Massachusetts voters.

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Mitt Romney

Mr. Romney has now maintained that position for almost two decades, qualifying his stand as he sought the Republican presidential nomination but never relinquishing the view that inflation adjustments would be good for workers, good for employers and good for the broader economy.

As he prepares to accept his party’s nomination this week, his steady support for an idea vigorously opposed by conservatives and business groups underscores the complexity of predicting how he might manage the national economy.

During the current campaign, Mr. Romney has embraced the conservative view that government can best help the economy by getting smaller, and he has selected as his running mate Representative Paul D. Ryan, a Wisconsin Republican who is a standard-bearer for fiscal conservatism. But a review of the positions that Mr. Romney has taken on economic issues during his two decades in politics reveals a recurring tension between his political commitments and his private sector experience at Bain Capital, which he often cited earlier in his political career in advocating a larger government role in the economy.

Mr. Romney has propounded the benefits of expanding and enforcing regulations, including the minimum wage and environmental laws. He has argued that government spending, including public investments in private companies, can stimulate the economy and create jobs. And he has advocated tax penalties to shape public behavior, as in his successful campaign to penalize Massachusetts residents who do not obtain health insurance.

In recent years he has modified or abandoned some of these positions as he courted Republican support. But the minimum wage is an example of an issue on which he has held constant.

And some people who have known him in both of his careers say that he still sees government through the pragmatic eyes of a businessman.

“I think his basic philosophy is, whether you’re running a for-profit business, a nonprofit or a government agency, at the end of the day one should evaluate how one is doing, and continually evaluate success, and the right criteria is the level of customer satisfaction,” said Thomas G. Stemberg, the founder of Staples and a friend and adviser to Mr. Romney since the mid-1980s.

The looming showdown over the federal budget would provide one of the first tests of how Mr. Romney would balance these influences as president. He has said during the campaign that the deficit should be reduced solely through spending cuts, and that less spending would stimulate growth. Mr. Ryan is a leading proponent of both views. But in Massachusetts, Mr. Romney worked with the Democratic-controlled legislature to close budget deficits through a combination of spending cuts and increased revenues from higher fees for public services and the elimination of some corporate tax deductions.

A Lost Investment

In 1985, Mr. Romney and his colleagues at Bain Capital made one of their first investments in Sanborn Industries, a Massachusetts company that made recycling systems for industrial coolants. The Environmental Protection Agency had just proposed a rule encouraging such recycling. But the agency delayed enactment, potential customers waited and Bain lost its money.

The lesson that Mr. Romney took, which he described 25 years later in his book “No Apologies,” was that the regulation was a good idea but that the government should have moved more quickly. “The regulations ultimately led to better machining industry practices,” he wrote, “but because they weren’t enforced for almost a decade, we lost our investment.”

His support for minimum wage increases reflected the same principle, that government enforcement of minimum standards is economically valuable — “I wish more Republicans and Democrats alike understood that important truth,” he wrote — and that businesses benefit when that enforcement is predictable.

When he endorsed inflation indexing during his 2002 campaign for governor, he said it would let businesses plan better than they could with intermittent minimum wage increases at the whim of politicians. “I do not believe that indexing the minimum wage will cost us jobs,” he said. “I believe it will help us to retain jobs.”

He said that again in 2008, during his first presidential campaign, and in January while campaigning in New Hampshire.

But under fire from conservatives, he modified his position, saying that automatic increases in the minimum wageshould be suspended in some circumstances, like periods of high unemployment.

Mr. Romney has also stopped talking about the benefits of regulation, focusing instead on its costs. His campaign platform includes proposals to curtail rule making, like capping the total cost of regulation at the current level, without adjusting for inflation.

“For every regulation, there are unintended consequences, underestimated costs and unwanted influence from special interests,” Mr. Romney said in a speech in March at the University of Chicago. “When the heavy hand of government replaces the invisible hand of the market, economic freedom is the inevitable victim.”

A few weeks after taking office in 2003, Mr. Romney visited a solar panel factory in Lowell, a run-down mill town north of Boston, to announce that a state trust fund would invest $9 million in five companies developing clean energy technology and place an additional $15 million in a privately managed fund to make further investments.

During the current campaign, he has said that the government should not invest in individual companies, criticizing the Obama administration for doing so in cases like that of Solyndra, a bankrupt solar panel maker.

Shunning a Tax Pledge

But in 2003, he extolled the potential economic benefits. The fund, he said, “can become a major economic springboard for the commonwealth by focusing on job creation in the renewable energy sector.”

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Mitt Romney

Mr. Romney’s predecessor, Jane M. Swift, had proposed that the state should take $81.6 million from the Renewable Energy Trust, about half of its financing, to pare the state’s budget deficit.

Rob Pratt, who ran the fund, said that Mr. Romney’s staff called shortly after the inauguration to ask about investments that were ready to be announced. “It was very encouraging that he wanted to put his imprint on it,” Mr. Pratt said in an interview. “After that, I never felt that they were going to take a run at gutting the trust.”

A month later, in February, when the State Senate proposed draining $35 million from the fund, Mr. Romney argued for spending cuts instead. He ultimately agreed to take $17 million from the trust, but he immediately announced legislation requiring the state to buy a comparable amount of renewable energy, maintaining support for the industry by other means.

Mr. Romney’s current opposition to such investments has placed him at odds with many business interests. “I know that not everyone is happy with my discourse on this,” he told the Business Roundtable, an association of executives, in June. “But I don’t think the government should be investing in individual companies to try and promote individual companies.”

It has also disappointed some of those he worked with in Massachusetts. William Osborn, a private manager selected to help the state invest $15 million through the spin-off Green Energy Fund, said Mr. Romney had liked the idea of combining the strengths of government, including a longer investment horizon, with private sector discipline.

“He’s altogether a different person now,” Mr. Osborn said, “but back then there was no complaint that he wasn’t supportive of this stuff.”

Shunning a Tax Pledge

Barbara Anderson spent more than half an hour in March 2002 fruitlessly trying to persuade Mr. Romney, then seeking the Republican nomination for governor, to sign the pledge for no new taxes that the last three governors, all Republicans, had signed.

Ms. Anderson, executive director of Citizens for Limited Taxation, an influential group in the small world of Massachusetts conservatives, met with Mr. Romney in a hotel conference room north of Boston with a copy of the pledge printed on parchment-style paper “that looked a little businesslike,” she said.

“What I remember is that he never stopped smiling,” Ms. Anderson said in an interview. “He listened and gave us all the time we needed to make our case, and then he said what he was going to say: ‘I’m just not going to sign it. It’s not necessary. I’m not going to raise taxes.’ ”

But Mr. Romney would soon anger conservatives with a tax proposal that was not intended to raise any new money. In October 2002, he called for Massachusetts to shift from a flat-rate annual tax on automobiles to a tax based on emissions. Mr. Romney was careful to describe the plan as “revenue neutral.” It was meant to change behavior. Owners of low-emission vehicles would pay less; owners of high-emission vehicles would pay more.

Ms. Anderson told The Boston Globe that it was an example of “big mama government telling us how to lead our lives.”

The idea found little support in the legislature, but it was representative of Mr. Romney’s broader view that government could improve the economy not just through tax cuts but also through penalties — as in his landmark plan to penalize people who do not carry health insurance.

“Experience proves again and again that incentives are more effective than controls,” he wrote in his book.

As Mr. Romney sought to close the state’s budget deficit, he also sought to raise revenues by invoking what he described as the conservative principle of personal responsibility, cutting corporate tax deductions and raising fees for things like ice rink rentals and business licenses.

He invoked the same idea in a deal with the legislature to replenish the state’s unemployment fund through a combination of benefit cuts and higher fees on businesses, with most of the burden falling on companies that had most frequently dropped workers onto the dole. All states use a version of this “experience rating” to set unemployment taxes; Massachusetts under Mr. Romney moved from a modest adjustment to one of the steepest slopes.

“It was kind of hard to argue against those changes,” said Bill Vernon, Massachusetts state director for the National Federation of Independent Business, a small-business trade group.

Mr. Romney has indicated, however, that he would not replicate the Massachusetts approach nationally. He has said that the federal government’s revenues are sufficient, and that he would focus on spending cuts.

He has also backed away from the use of tax penalties. In early 2006, he proposed what he later described as a “similar but more palatable” plan to offer a tax break for buyers of fuel-efficient vehicles, with no attempt to recover the lost revenues from owners of other vehicles.

And in December 2006, while preparing for his first presidential bid, Mr. Romney signed his name to a national version of the pledge for no new taxes.